Rep. Frank Ryan is looking to move Pennsylvania in a direction it has resisted for decades in order to eliminate school property taxes. He wants to tax retirement income and he wants to make food and clothing subject to a sales tax.

The most radical aspect of Ryan’s proposal entails placing a 4.92% tax on retirement plan withdrawals excluding whatever portion the employee contributed to that plan – with 3.07% going to the state and 1.85% going to the local school district. Social Security benefits would be exempted from this tax.

Ryan’s plan also would provide for a 2% local sales tax on the same items already subject to the state sales tax, plus food and clothing. Currently, food and clothing are exempt from the state’s sales tax.

Under Ryan’s plan, those receiving public assistance would be exempted from the tax on food. His plan also includes a 1.85 percent local personal income tax, which would be in addition to the 3.07% rate the state charges.

“Never would have I designed a system from scratch like the bill I’m proposing but I didn’t design the system that is failing that I have to fix,” said Ryan, a 68-year-old certified public accountant.

But ignoring the problem as state lawmakers have been wont to do for decades isn’t the answer either.

“If we fail to bring this to fruition, the issues that will take place in about 12 years for our commonwealth will be insurmountable and we will regret the fact we did not act today," Ryan said.

He admits his plan introduces financial pain for some people where there may be none now. But he said it is necessary when looking at the outmigration of young families, the state’s growing population of senior citizens, and projections that show the property taxes are growing at a rate of about $500 million a year.

Along with taxing retirement income and adding a local sales and personal income tax, his plan would require landlords to pass on property tax elimination savings to renters and ban districts from ever bringing back a property tax. His plan would give school districts three years to figure out how to operate on the new revenue stream this plan creates.

If districts find themselves to be no longer financially viable, Ryan said the state Department of Education and administration would encourage districts to merge.

Taxing retirement income and broadening the sales tax base were among the recommendations made by the Tax Foundation, which released a report last year on modernizing Pennsylvania’s tax code that was commissioned by the Pennsylvania Chamber of Business and Industry.

At a property tax elimination workshop held last week in York County, Sam Denisco of the Pennsylvania Chamber of Business & Industry commended Ryan for putting the idea of taxing retirement income on the table as part of a solution to eliminating school property taxes.

Even Ray Landis of the AARP Pennsylvania didn’t outright reject the idea at the workshop. He said it would be a big step but given the state’s demographics that show the 65-plus age group growing, it was worthy of consideration.

Ryan estimates seniors, who now pay $3.4 billion in property taxes, would pay a combined $1.4 billion in his tax on retirement income, saving $2 billion, although the added local sales tax in this plan could eat up some of that.

Among those who came to offer support to Ryan’s plan at his news conference on Tuesday was Jim Rodkey of the PA Property Rights Association. He said what seniors should keep in mind is that indirectly they are already paying a tax on their retirement income. He said the money they use to pay their property tax bill comes out of their retirement income.

“We’re saying let’s make it a tax you can actually see that’s based on ability to pay,” Rodkey said. “It is unconscionable to me that we would continue to allow ourselves to be shackled to this regressive and egregious system of taxation. Certainly we have to find a replacement revenue to make this happen and however we do that, it has to be as fair as the law will allow. … We all have to have skin in this game.”

Ryan said adding the controversial retirement income tax and local sales tax are the only way he could come up with enough revenue to balance out the burden of replacing the billions that the property tax raises.

To date, he said superintendents have offered mixed reactions and seniors are split as well, although he said those who live on Social Security alone seem supportive.

The Pennsylvania Association of School Business Officials, although not outright opposed, is skeptical about the plan. Tim Shrom, the association’s research director, said in a subsequent interview his organization agrees that significant tax relief is needed but opposes a complete shift away from the property tax.

Shrom said an property tax relief policy that fails to address the decline in the state share of the funding burden and mandated charter school, special education, and pension cost growth will prove unsustainable.

Blake Ringenberg, owner of Gethsemane Counseling and Coaching of Mount Joy, said at Ryan’s news conference a segment of the population that should be kept in mind in talking about property tax elimination are children and the trauma losing their family’s home can cause them.

“The best way to mess up a kid’s development is to take away his primary secure attachments to his environment,” Ringerberg said. “That is the root that keeps the tree growing for many kids.”

Ryan said the same can be true for seniors who face losing their home that they paid taxes on all their lives.

Senior citizens’ support is the key to getting his plan across the finish line, Ryan said. If they don’t get behind it, he said it stands no chance of passage.

“This is not going to be an easy sell,” Ryan said. “It’s controversial. It’s never been done before.”

Ryan said he plans to travel around the state to inform groups about his plan in hopes of ginning up citizen support to convince lawmakers that this is the best approach to addressing the problem of rising property tax bills.

*This post has been updated to clarify that the plan has a 4.92% tax on retirement income.

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